The question on everyone's mind nationally is "will the plan outlined in the Rescue legislation work" to help the struggling economy and support the ailing real estate market?
I believe that there is no silver bullet that will be a complete quick fix.
However, there is precedent and reason to be optimistic.
New York Times writer, Amy Schoenfeld discussed the role of American Debt and the American Burden that has come since the first consumer loans took form in the 1920's.
Ms. Schoenfeld, walks us through a previous time in history where ....
for the first time, starting in the 1920's banks offered 3-year to 5-year mortgages with lump sum (balloon loans) payments at the end of the loan.
Does this at all sound like short term ARM‘s (Adjustable rate mortgages) of the last 10 years?
Americans then, like Americans now, took on debt during the Great Depression and many leaders called on debt as a key to recovery.
Does this sound like the lowering of interest rates rapidly starting in 2001 after 9/11 to add consumer confidence to a shaken economy?
However, refinancing of theses loans was nearly impossible as home prices dropped.
Does this sound similar to the inability of today's homeowners to re-finance into better loans to ride out the housing downturn?
According to one estimate nearly half of urban mortgages are delinquent in 1934.
Today, we have as many as 3 million Americans who may face foreclosure by several estimates.
The government acted quickly to make long-term loans the industry standard and provided for the refinancing of one million delinquent loans and offered insurance on loans.
Does this sound eerily similar to the Housing Rescue Act that the Senate just passed ?
Next, right after WWII, Americans buy homes with government insured mortgages.
Will the outcome of the Housing Rescue Act of 2008 be the same renewed consumer confidence and economic recovery that we saw in the 1940's?
In 1951, 53% of homeowners have no mortgage debt.
This outcome may be a bit far reaching as we are a now a Country and economy built on debt. (According to the New York Times, Americans carry $2.56 Trillion in consumer debt, up 22 percent since 2000.)
However, the historical parallels are compelling and are difficult to ignore.
We may not reach the levels of 1951. However, if the Housing Rescue bill works we are well on the way of putting words like ‘recession' in our rear-view mirror and are heading towards a recovery.
History tells us we have reason to be optimistic; dare I say ‘confident'?
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Contact James Wexler (480) 221-8080 for all your Phoenix | Scottsdale Real Estate needs
james - this will work, if and only if, the banks will actually use the money to lend.
So far, we have seen no credit open up, despite what the government controlled media tells us.
Prime time- right now the banks, who are not required to by the language of the rescue bill, are not lending unless you have 25% down payment and full-docs (for jumbo loans).
That does not tell me that banks are opening up the credit the banks were lent taxpayer money for
wexler -
you lay out a pretty convincing story that past history may prove to be precedent for what is happening.
Though, after watching the world markets collapse over the last several weeks, it seems we are in different times from any point in our history. I hope I am wrong and you are right.
Scott - I remain cautiously (skepticially) optimsitic that the housing rescue package, the banking bailout and a move by the FED to lower rates will offer stabilization to the housing market.
A recovery may be a ways off, however, stability will go a long ways towards consumer confidence adn getting people off the sideline and back interested in real estate.
james -
ly read that when Japan was facing a similar crisis years ago, they lowered interest rates to zero percent which stimulated the economy to make them the second wealthiest country behind the good ole' US of A.
Maybe that is what we need? interest rates at zero? thoughts?
jason - very interesting point.
zero interest rate policy, also know as ZIRP has been used quite successfully, In fact, I wrote a post suggesting the FED go to ZIRP and why it would be a good idea.
Check it out: What is ZIRP and why you should care !
No, a million times, no, and no again. It's a smoke screen averting Wall Street panic. It happened in 1982 and it'll happen again. Variable rate mortgages are just a misfortunate by-product of the disaster. FNMA and FHLMC should have done the math in the early seventies.
Have a fine weekend, James.
James, I like the way you think and I am pulling for 1951 or close to it! Very good comparison which made it simple to follow. You have a very good knack at explaining the complicated and making it quite simple.
David - you may be right about the smoke screen. and yes, it seems for the money the execuitives and powers that run FNMA and FReddie mac, the should have done the math, well before this disaster
Gena - thanks, it sure sounds simple enough, I guess if time proves me right then the complicated may seem simple. I just hope it is for everyone's sake. not just me being right. thanks for commenting.
Thanks for taking the time to post this ... excellent information
Debbie Salmon - I thought it might be nice to share some history to those who only have experienced these last 4 years and that we have been there before and will get past it again